Industry, Agencies Probe Aging Cook Inlet Infrastructure

Leaders from the oil and gas industry and state regulatory agencies met in Anchorage Monday for a work session to begin the conversation about what to do with aging infrastructure in Cook Inlet. One of the biggest questions to answer: who will be responsible?

The big takeaway from Monday’s work session was that there are a lot more questions to answer, and probably even more left to ask. Presidents and other executives from several of the companies operating in Cook Inlet submitted their comments to the Division of Oil and Gas. Their main concern was not being left with the sole responsibility of dismantling or removing the oil platforms that dot the Inlet once all the reserves have been tapped.

Considering some of those platforms have been in use for forty-plus years, and by several different companies, it poses an interesting question. Is it the state’s problem or the industry’s?

State Senator Cathy Giessel, a Republican from Anchorage, said she sat in on a couple of meetings like this, but she’s still not sure.

“Well, you know, I haven’t really thought about it a lot. As someone brought up, mining companies carry the burden,” Giessel said. “So should that be put on the oil and gas industry? I don’t know. I have to weigh that out,” she said after the workshop.”

Federal law dictates that  mining companies are on the hook to have some sort of plan in place that wraps up operations once the mining is done. That’s not the case with the platforms in Cook Inlet.

Senator Peter Micciche, a Republican from Kenai, said the question of responsibility will be determined by the final use of the equipment.

“If it ends up being that the structure is for the greater good of Alaskans,” Micchiche said. “We talked about using platforms for (tidal) power generation…if we ended up using them for something else, it’s not black and white. I think for future development, those are agreements that should be made at the beginning. We should understand ultimately who’s going to be responsible and what those expectations are,” he said.

Industry leaders shared generally the same opinion. That setting aside large sums of money for future dismantling projects drains capital from current operations. And that prematurely shutting down or dismantling a platform could leave resources in the ground.

Buccaneer Energy president Jim Watt told the panel that hypothetically, a company would have a separate fund to pay for shutting things down, based on production over the life of the platform or well. But when asked by division of oil and gas director Bill Barron how the state could ensure that those funds would continue to be available as the facility changes hands, Watt said the reality is a bit different.

“Well normally in the terms of a transaction, the future abandonment costs are estimated” Watt said. “And that lessens the value of the transaction. So there’s a future estimate of value, of costs to abandonment, and that’s established as the transaction price. So in essence, there is no transfer of funds from one company to another.”

That worries Cook Inlet Keeper’s Bob Shavelson.

“Industry and Alaskans and I think our government all benefit from predictability,” Shavelson said. “We want to see clear rules, we want to see transparency. We don’t want to see a corporation hiding this money, we want it to be out in the open. So the rules need to be changed. We should do an audit, we should look at these things and understand exactly what the costs are going to be because I think that’s what’s up in the air right now.”

Cook Inlet Keeper recently released a report that took a look at what those costs could be and found that, at best, the state has about half of what it might cost to dismantle, remove or restore these facilities.

“Most of this infrastructure is getting on 50 years old, it’s well beyond its designed life. So these are issues we should be addressing right now.”

Everyone at the session said a lot more work needs to be done to get the state and the industry on the same page in terms of what they expect of each other, and what the best use, or disuse of all those platforms will be once the oil is gone.

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